Virgo Investment Group, the US private equity firm, has invested in agribusiness loan and crop insurance provider Ag Resource Management (ARM), the latest evidence that investors are turning to the agri loan market as a source of growth.
The investment, the size of which was undisclosed, will be used by the Louisiana-based company to buy other agri debt and finance providers and expand across the country.
“With Virgo’s investment, ARM will be able to execute our location-based expansion strategy expanding our footprint and gaining nationwide coverage of the agribusiness market,” Mark Branch, co-founder of ARM said in a statement.
Mack McNair, a founding partner at Virgo, said he was impressed with the performance of ARM’s loan portfolio, which consists largely of short-term production loans for farmers, secured by crop insurance.
“These guys, the Terral family, have built a nice business and have taken it a pretty long way, but needed a little help,” McNair told Agri Investor.
That help, he said, will include access to capital, introduction of new technology, new partnerships with lending and insurance agencies and the acquisition of 12 new locations over the next two years. Virgo will hold a 70 percent stake in the newly formed partnership, with McNair serving as chair.
“It’s a niche that has been filled traditionally by distributors and regional and local banks,” he said. However, as these distributors give way to larger specialised companies and lenders grow nervous about volatile commodity prices, farmers will need new sources of financing to get their crops to market.
McNair said the company relies on exceptional due diligence to manage the risk of its short-term loans. “They have a very in-depth underwriting process and security process that allows them to feel comfortable extending these types of loans.”
In recent months a swathe of agri investors have begun to offer loans and other financial products for farmers and agribusinesses.
In August Farmland Partners, the US REIT, launched an agricultural lending programme offering loans of up to $5 million, a move chief executive Paul Pittman, told Agri Investor was due to “the market pressures facing farmers and the regulatory environment for traditional agriculture bank lending”. In March Iowa-based agri investment firm Conterra Asset Management said it was developing its business to offer loan services to institutional investors and last year Ohio’s Heartland Bank launched its own agribusiness lending programme.
Brad Terral, co-founder of ARM said that “the landscape for agribusiness risk management is changing rapidly,” and that these changes, including increased bank regulation and continued volatility in crop markets, put agri finance providers in a strong position.
Virgo is a mid-market private equity firm which has invested over $725 million in 41 businesses since 2009.
Additional reporting by Nathan Williams.